- Jen Psaki, an auditor with Martinez CPAs, is performing areview of Sergei Company's inventory account. Sergei's did not havea good year and top management is under pressure to boost reportedincome. According to its records, the inventory balance at year-endwas $835,000. However, the following information was not consideredwhen determining that amount.
- Included in the company's count were goods with a cost of$200,000 that the company is holding on consignment. The goodsbelong to Bosnia Corporation.
- The physical count did not include goods purchased by Sergeiwith a cost of $40,000 that were shipped FOB shipping point onDecember 28 and did not arrive at Sergei's warehouse until January3.
- Included in the inventory account was $15,000 of officesupplies that were stored in the warehouse and were to be used bythe company's supervisors and managers during the coming year.
- The company received an order on December 28 that was boxed andwas sitting on the loading dock awaiting pick-up on December 31.The shipper picked up the goods on January 1 and delivered them onJanuary 6. The shipping terms were FOB shipping point. The goodshad a selling price of $40,000 and a cost of $30,000. The goodswere not included in the count because they were sitting on thedock.
- On December 29, Sergei shipped goods with a selling price of$100,000 and a cost of $80,000 to Oman Sales Corporation FOBshipping point. The goods arrived on January 3. Oman Sales had onlyordered goods with a selling price of $10,000 and a cost of $8,000.However, a Sergei's sales manager had authorized the shipment andsaid that if Oman wanted to ship the goods back next week, itcould.
- Included in the count was $30,000 of goods that were parts fora machine that the company no longer made. Given the high-technature of Sergei's products, it was unlikely that these obsoleteparts had any other use. However, management would prefer to keepthem on the books at cost, “since that is what we paid for them,after all.”
INSTRUCTIONS: Prepare a schedule todetermine the correct inventory amount. Provide explanations foreach item above, saying why you did or did not make an adjustmentfor each item.
